The Onion Hypothesis of Economics

The Onion Hypothesis of Economics

By Harlan Brown, October 2009

Foreclosures are up, the economy is down, and people are looking for solutions. To find solutions, we need to understand causes.

I'm not an economist, and I do not pretend to have comprehensive knowledge of what is happening in the economy. However, I would like to share some ideas that I have pulled together from persons much more knowledgeable than I.

Into the fiscal abyss

In March of this year, Dr. Mark W. Hendrickson, an economist and adjunct faculty member at Grove City College, wrote an insightful article titled “Into the fiscal abyss.” This article, one of the best summaries I've seen of where the United States stands financially, began as follows:

The U.S. Treasury recently released its “2008 Financial Report of the United States Government.” In case you had any doubts, our government's finances are in a terrible mess. According to the report, under generally accepted accounting principles (the ones that private businesses are required by law to use), Uncle Sam's total financial liabilities—explicit debts and unfunded obligations—exceed $65 trillion. That's five times as large as our national GDP—a GDP, by the way, that happens to be shrinking at an alarming rate.

Hendrickson's article links to another article, “We're Broke,” written last fall, which links to “America's Debt Problem,” written the preceding summer.

In “We're Broke” Dr. Hendrickson wrote, “Our real bankruptcy, though, is not financial, but political.” In “America's Debt Problem” he got even closer to the ultimate source of our economic woes. He wrote, “What explains this mountain of debt? Primarily, it reflects an attitudinal shift, the gradual supplanting of the ethos of deferring present gratification by an ethos of 'enjoy now, pay later.'”

The Onion Hypothesis

Hendrickson refers to political bankruptcy, which leads to financial bankruptcy. He also mentions an attitudinal shift. Our moral values as they relate to self-gratification impact our political values.

One way to conceptualize what is happening is the layers of an onion. Visualize an onion that has a rotten spot on the outside that extends to the core. The layers from outside to inside represent the following factors:

  • economic
  • political
  • moral

The interaction between layers can be complex. In some cases the moral layer directly touches the economic layer. In other cases it acts through the political layer. In some cases the government has acted wisely and helped the economy. (See “We Could Use a Man Like Warren Harding Again” and “Warren Harding and the Forgotten Depression of 1920.”) In other cases the government has acted unwisely and hurt the economy. See “FDR: Then and Today (A review of Burton Folsom's "New Deal or Raw Deal").”

Later in this commentary I'll discuss the core of the onion that underlies the moral factor.

Forecasting business conditions

Associating attitudes and moral values with business conditions is nothing new. Roger Babson (1875-1967) was an American statistician who pioneered in developing statistical information of special interest to businessmen, bankers, and investors, including forecasts of business conditions. Babson earned the distinction of being the first financial forecaster to predict the stock-market crash of October, 1929, and the Great Depression that followed.

Babson earlier had predicted the depression of 1920 to 1921. In January, 1920, he was the speaker at an Association of Commerce luncheon in Chicago. The United States was then at the height of a wave of postwar prosperity.

“Gentlemen, we are about to enter the worst business depression that our generation has ever experienced,” Babson said. “I advise you all to set your houses in order. I advise against any further plans of expansion until this depression has passed over.”

Seated at tables in that large room were leading bankers and business executives of Chicago. Amused smirks animated the faces of many prominent men. Through the next few months of 1920 business activity continued its boom upswing.

Before the end of 1920, Roger Babson's predicted depression did strike—with sudden and intense fury. By January, 1921, the depression had reached and passed its lowest ebb. At that time Babson once again was the guest speaker in the Morrison Hotel Cameo Room at the weekly Association of Commerce luncheon.

“Well, gentlemen,” he said, “you will remember that a year ago I warned you that within one year we would be in the throes of the worst depression our generation has ever seen. I noticed many of you smiling unbelievingly then. Well, that year has rolled around, and here I am again, and here is the depression with me.”

Chicago business leaders were not smiling. Babson then proceeded to explain why he knew what was coming and business executives did not.

“It is now mid-winter,” he said. “If I want to know what the temperature is, now, in this room, I go to the wall and look at the thermometer. If I want to know what it has been, up to now, and the existing trend as of the moment, I look at a recording thermometer. But if I want to know what the temperature in this room is going to be, an hour from now, I go to the source which determines future temperatures—I go down to the boiler-room and see what is happening down there. You gentlemen looked at bank clearings, indexes of business activity, stock car loadings, stockmarket quotations—you looked at the thermometers on the wall; I looked at the way people as a whole were dealing with one another. I looked to the source which determines future conditions. I have found that that source may be defined in terms of ‘righteousness'. When 51% or more of the whole people are reasonably ‘righteous' in their dealings with one another, we are heading into increasing prosperity. When 51% of the people become ‘unrighteous' in their business dealings with their fellows, then we are headed for bad times economically!

Scandals in business and government

In recent years, corruption and scandals at Enron, WorldCom, Adelphia Communications, and other large corporations have rocked Wall Street. Such corruption not only has a devastating impact on stockholders but it affects the overall economy. All Americans are affected by unrighteous actions of an elite minority.

Government fares no better. Elected officials have been involved in scandal after scandal. Both major political parties have been involved in ethics scandals ranging from bribery extortion to influence peddling, not to mention various sex scandals. Whether in business or in government, “The heart is deceitful above all things, And desperately wicked; Who can know it?” (Jeremiah 17:9).

The President and every member of Congress, both Senate and House, is required to take an oath to “preserve, protect and defend the Constitution of the United States.” Article I, Section 8 of that Constitution enumerates the powers of Congress, and Amendment 10 says, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Yet both major political parties have passed legislation that is beyond the enumerated powers. As Robert Ringer has written:

Constitutionally and morally speaking:

The government has no legal or moral right to be involved in healthcare.

The government has no legal or moral right to be involved in banking.

The government has no legal or moral right to be involved in the automobile business.

The government has no legal or moral right to be involved in education.

The government has no legal or moral right to be involved in funding "community organizers" - or any other groups - whether they do or don't promote prostitution, tax evasion, or election fraud.

And the government certainly has no legal or moral right to be involved in redistributing wealth.

And I might add, the government has no legal or moral right to use our tax dollars to kill babies.

The core of the onion

The willingness of voters to elect politicians who are destroying our economy, our nation, and our future is, I think, symptomatic of a larger spiritual crisis. Erwin Lutzer, senior pastor of the Moody Church in Chicago, put his finger on the heart of the matter when he wrote on Page 12 of Is God on America's Side?, “God is consistently banished from science, economics, history, education, and government. The role of religion, we are told, is to bless the soul, but not to interfere with our lifestyle or public policy.”

Later in the book Lutzer discusses God's judgment on America and some of the reasons:

Yes, America is a great and wonderful country with a benevolent people, but the question is this: May God use a very wicked country to judge us? The answer is yes. After all, we are among the leaders of the world in the production of pornography, abortion, and the acceptance of same-sex marriages. We have been proud of our wealth and power and have acted as if we have ourselves to thank for our many blessings. Our congress now enacts legislation that isolates God from people's daily lives. The judicial system, especially the Supreme Court, renders judgments that, in effect, banish God everywhere from the public school to the public marketplace. Local school boards have insisted that atheistic evolution be taught rather than affirming God as the Creator. If Jesus is still spoken of with respect, it is only because He has been redefined to fit the pluralistic spirit of the times.
The sins of the world are found in our churches along with the sin of racism and the benign neglect of the poor. As God's people, we Christians have been preoccupied with our own peace and affluence and cared little about whether our neighbor knows the warmth of our heavenly Father's heart. We have turned our back on full-orbed biblical teaching in favor of positive suggestions on how our life can be better if we just include God. In many matters of life we have substituted the wisdom of man for the wisdom of God.

Earlier this year the American Decency Association reported on a business that was thriving in America despite the recession. This business produced for the Superbowl an ad that was rejected by NBC and the NFL but was aired by many stations in Texas. The ad promotes the business's dating service for husbands and wives who would like to expand their horizons beyond their marriage. At that point the service's website had 3.2 million members, and a new member was joining every 20 seconds.

The God-ordained institution of marriage is under attack, and both adults and children are suffering. Meanwhile more than 20,000 babies are brutally murdered each week, and this holocaust is euphemistically referred to as “choice.” In a large percentage of cases the mother was coerced into this tragic choice without regard for either the baby or the mother.

The core of the onion is spiritual.

If the core is rotten, the rottenness will eventually spread to the surface and become visible. At the end of the day a haunting question remains: Can we solve America's economic crisis without addressing the spiritual crisis?

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